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Vietnam Economic Growth Quickens as Investment Aids Exports

Vietnam’s economic growth accelerated in the second quarter after the central bank cut interest rates to revive lending to businesses and rising foreign investment boosted the nation’s exports.

Gross domestic product grew 5% in the second quarter from a year earlier, according to figures released today by the General Statistics Office in Hanoi. The central bank said today it will adjust its dong-dollar reference rate and that it would lower its rate caps on U.S. dollar and dong deposits.

Vietnam’s central bank has cut its refinancing rate eight times since the beginning of 2012 to spur lending, and the government is setting up an asset management company to clear bad debt. The legislature last week voted to lower the corporate income tax rate to help businesses, while disbursed foreign investment rose 5.6% in the first half of the year to $5.7 billion, according to the Ministry of Planning & Investment.

“This isn’t going to be a strong growth year, but the economy is stabilizing,” said Gaurav Gupta, the Hanoi-based managing director at General Motors Co.’s Vietnam unit, citing lower interest rates and inflation than in previous years. “This year should set the base for the government to take actions to drive growth faster in the future.”

The dong has slipped about 0.4% this quarter, a smaller decline compared to other regional currencies including the Philippine peso and the Thai baht. The benchmark VN index has gained more than 16% this year.

Business indexThe central bank adjusted the dong-dollar reference rate to 21,036 from 20,828, which has remained unchanged since Dec. 26, 2011. The monetary authority also cut the dong deposit rate cap to 7% from 7.5% and dollar deposits for individuals to 1.25% from 2%. The changes are effective June 28.

The adjustment is “to more accurately reflect the supply and demand of foreign currency in the market” and to “create stability” for the foreign-exchange market, the central bank said today. The monetary authority will use all necessary measures to ensure the stability of the exchange rate, it said.

Vietnam’s economy expanded 4.9% in the first half from a year earlier, compared with a median estimate of 5% in a Bloomberg News survey of seven economists. The nations’ GDP grew a revised 4.76% in the first quarter from a year earlier, and is set for a third straight year of sub-6% growth for the first time since 1988.

Supply capitalThe government targets 5.5% for this year after a 5.03% pace last year, the slowest since 1999. Vietnam’s GDP may rise 6% in 2014, according to a directive by Prime Minister Nguyen Tan Dung posted on the government website this week. It also urged implementing monetary policy with the aim of stabilizing the currency in order to “efficiently” supply capital in the economy.

Exports in the first half rose 16.1% to $62.05 billion from the same period a year earlier, while importsclimbed 17.4% to $63.5 billion for a trade deficit of $1.4 billion, the Statistics Office said today.

“Most of the growth is coming from the foreign-invested sector,” said Dominic Mellor, a Hanoi-based economist at the Asian Development Bank. “That’s how Vietnam has been able to sustain its exports and, to some degree, its growth.”

Credit for the five months through May 31 rose 2.98%, compared with a 0.56% increase in the same period a year earlier, according to the central bank. A business-climate index climbed in the second quarter from the first, according to the European Chamber of Commerce in Vietnam.

Industry and construction, which made up 38.7% of the economy in the first half of the year, grew 5.18%, today’s data showed. Services, which accounted for 43.1% of GDP, grew 5.92%. Agriculture, fisheries and forestry, which made up 18.2% of GDP, expanded 2.07%.

“There are some signs that growth may be bottoming out,”said Deepak Mishra, the Hanoi-based lead economist in Vietnam for the World Bank. “But it’s premature to conclude whether this is the beginning of a sustained recovery.”